Bonds agency could save councils more than £1 billion
LGA press release 21 March 2014
A local government collective Municipal Bond Agency could save more than £1 billion in borrowing costs for councils investing in new infrastructure like homes, roads and business hubs.
The Local Government Association‘s Executive has given the green light to proceed with the project to establish a Municipal Bonds Agency after being presented with a compelling revised business case showing it to be an attractive proposition for councils and local taxpayers.
With councils currently sourcing 75 per cent of borrowing from the Public Works Loans Board (PWLB), the revised business case indicates that if half of the outstanding debt with the PWLB was transferred to the agency the saving to the local government purse could be between £1.2 billion and £1.45 billion over 30 years.
The focus of the project will now be on raising the capital needed to establish the agency giving councils and related bodies, such as council pension funds, the opportunity to become shareholders in the agency.
LGA Chairman Sir Merrick Cockell said:
"The LGA's decision to proceed having been presented with a compelling revised business case for setting up an agency marks an important milestone.
"The huge savings councils stand to make by directly raising the money we need for new roads and housing support a convincing argument for recreating a thriving market in municipal bonds.
"Different types of council from right across the UK have told us they would consider using the agency and the markets want to invest in these bonds.
"This is a great low-risk opportunity for local authorites and other pension funds to support investment in UK infrastructure, while receiving a better rate of return than from gilts. The huge potential for reducing local government's borrowing bill by introducing diversity and a council-owned competitor into our lending market is too big to ignore."
Simon Ward, Deputy Head of News and Internal Communications
Local Government Association
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24 March 2014